FCC ALLOWS $47.5 BILLION MERGER OF COMCAST AND AT&T CABLE UNIT

FCC ordered AT&T and Comcast to place Time Warner Entertainment (TWE) into irrevocable trust on day merger closed and fully divest themselves of any interest in TWE within 5 years. During divestiture period, merged entity AT&T Comcast was barred from involvement in video programming activities of TWE. Commission voted 3-1 to approve merger, with Comr. Copps dissenting.

Benefits of merger are considerable and potential harms are negligible, Chmn. Powell said: “We therefore conclude that the merger serves the national interest, convenience and necessity.” Commission’s conditioning of its approval on sale of AT&T Comcast’s 25% ownership interest in TWE is most significant public interest benefit of transaction, he said. “By the action we take today, the Commission finally severs a complex relationship of intertwining programming and distribution assets that has plagued the Commission for years,” Powell said.

Copps, in separate statement, said sheer economic power created by combination, and “opportunities for abuse that would accompany it,” outweighed very limited public interest benefits that either companies or majority found in transaction.

With TWE, FCC said, merged company would have ownership interest in cable systems with 38.34 million subscribers -- 41% of all MVPD subscribers. Commission figure of 27 million subscribers for merged company also included AT&T’s 5.3 million customers in partnerships. FCC said it found that merger would spur new investment and create synergies and efficiencies that would result in significant cost savings. “Thus, the merger will have a positive impact on the deployment of broadband services, which is an important FCC policy goal,” agency said. There was no merger-specific public interest harm that would result from transaction, it said.

Clearing last regulatory hurdle for merger, Dept. of Justice announced that it wouldn’t challenge transaction following FCC approval with TWE divestiture condition. “After a thorough investigation and analysis that included a large number of interviews of industry participants and a review of documents from various firms in the business, the Department’s Antitrust Division has closed its investigation into the merger,” it said. Justice Dept. earlier had allowed Hart-Scott-Rodino deadline to pass (CD Sept 18 p6), meaning companies could move forward unless DoJ took affirmative steps to block merger, such as filing lawsuit. Also, more than 90% of local franchising authorities (LFAs) already had approved license transfers in their municipalities.

No open access requirement or build-out conditions were imposed on merged entity, Media Bureau Chief Kenneth Ferree told reporters at FCC hq Wed. He said agency had made “thorough and exhaustive” review of proposed combination before voting to approve transaction. Asked why agency hadn’t imposed other conditions such as ISP access, he said such concerns were non-merger-specific and would be dealt with in other proceedings. He said nothing was found in record to show that combination would result in higher cable rates. Asked why companies were given more than 5 years for divestiture, Ferree said decision was taken to allow them to make orderly disposal of assets worth $10 billion, highest involved in any FCC divestiture. Answering question, he said EchoStar-Hughes deal and AT&T Comcast merger were vastly different transactions. DBS transaction involved 2 companies in same market, while case of AT&T and Comcast didn’t compete in same market so they wouldn’t reduce subscriber choice as result.

Media Access Project (MAP) lost no time in challenging FCC decision in U.S. Appeals Court, D.C. MAP said it filed its lawsuit on behalf of Consumers Union, Consumer Federation of America and Center for Digital Democracy shortly after Commission issued order. Merger of largest and 3rd-largest cable companies will exacerbate their monopoly power and permit them to increase cable TV rates while decreasing diversity of program offerings, MAP Deputy Dir. Cheryl Leanza charged. “The FCC’s own data shows that regional ‘clustering’ permitted by this decision leads to increased prices and gives the company greater power to reject programming choices,” she said. MAP alleged FCC decision also “threatens freedom and openness” of Internet. MAP had asked for expedited court appeal of earlier FCC decision (CD Nov 8 p7).

FCC earlier had denied MAP request to see Internet service provider (ISP) agreement that AT&T and Comcast reached with America Online, part of AOL Time Warner. FCC, in its order ruling against MAP, said its staff had reviewed ISP agreement at DoJ and concluded it was irrelevant to merger (CD Nov7 p6). It also said ISP agreement wasn’t contingent on merger and that if merger failed to go through, AOL still would have ostensibly same arrangement, only it would be with AT&T instead of AT&T Comcast. MAP and others were concerned that AT&T Comcast would put stranglehold on access to high-speed broadband market, but FCC apparently rejected that assertion.

Copps said he was particularly concerned about anticompetitive effects of merger on programming. Although there’s general agreement that TWE Divestiture Trust alleviates concerns about merger’s potential for anticompetitive impact on video programming markets, there’s nothing in place to preclude merged entity from investing in other programming interests in future, he said. “Indeed, the whole dynamic of the industry will -- in fact, must -- pull the combined company in that direction.” Conceding merger would result in some economic efficiencies, he said that while Comcast talked about need to upgrade and modernize AT&T’s broadband deployment, “one wonders why this corporate resuscitation is better achieved by conglomeration and $30 billion of additional debt rather than through competition in the marketplace.”

Companies have has said all along that their combination would do much to further deployment of broadband. In testimony before Senate Judiciary Subcommittee on Antitrust, Competition and Business and Consumer Rights in April (CD April 24 p3), Roberts told Sen. Kohl (D-Ohio) that “open access” provisions weren’t necessary because companies already had formed negotiated agreements for ISP choice. At time, he touted pact Comcast signed with United Online to offer Net Zero and Juno as alternative ISPs. AT&T also signed deals with ISPs. Separately, Roberts had told Wall St. analysts that Comcast’s leadership would work to upgrade AT&T Broadband systems so high-speed Internet could be offered to more customers. He also has expressed much enthusiasm for prospect of offering more telephony. AT&T Comcast plant will pass more than 38 million homes. Combined company, off-the-bat, will have at least 1 million cable telephony customers.

FCC action will hurt citizens and consumers alike, Center for Digital Democracy (CDD) charged. Merger spawns new industry giant that will be able to exert unprecedented control of both cable and broadband Internet sectors, it said. “Under Chairman Michael Powell, the guiding principles of the Communications Act that the FCC enforce the ‘public interest, convenience and necessity’ have become meaningless,” CDD Exec. Dir. Jeff Chester said. Cable rates have shot up more than 45% in 6 years since Congress approved Telecom Act, Gene Kimmelman of Consumers Union said: “The approval of this merger means that many consumers are likely to see more price hikes, and it’s going to be ever harder for competitors to break into the cable and high-speed Internet market served by AT&T and Comcast.” SBC said deal would provide new company with huge advantage when it came to broadband regulation in addition to providing it with advantage of scale. “Unfortunately, competition in the broadband market is distorted, as only telephone company- provided DSL service remains hindered by rules and regulations that add cost and disincentives to deployment,” company said. SBC called on Commission to “quickly establish clear, consistent and fair rules” for all competitors.